Pound to Dollar Rate Choppy Ahead of BoE Policy Decision

Pound to Dollar Rate Makes Subdued Start to the Week

The pound to dollar rate retreated deep into 1.38 territory on Tuesday morning, following reports of a long-anticipated legal challenge from the EU over breaches of Northern Ireland trading arrangements. On Monday, UK officials stressed that the changes made to the trading arrangements were “lawful,” after the EU initiated legal action against it. The European Commission has accused the UK of breaching international law around trade and pet travel between Northern Ireland and Great Britain, following recent changes to the Brexit deal.

The pound also felt the weight of comments from Bank of England (BoE) Governor Andrew Bailey, who suggested the bank was going to start purchasing bonds to suppress higher yields.

A dearth of UK data until Thursday – when the BoE announces its latest interest rate decision – meant the pound needed another safety net. News that a Covid vaccination surge is expected in the UK in the coming days helped break its fall. Experts believe there will be a significant increase in the number of people being offered vaccinations, with the number of jabs administered expected to top 4 million this week – almost double the number achieved per week recently.

This should mean everyone over the age of 50 will have received at least one dose by the end of March, putting the NHS rollout two weeks ahead of schedule. The acceleration of the vaccination programme has been made possible by the arrival of a large shipment of the Oxford-AstraZeneca vaccine from India, which has passed safety checks.

By this morning, the pound to dollar rate had rebounded back above the 1.39 level.

Dollar Little Changed Ahead of Fed Statement

The dollar remained firm on Tuesday, as investors awaited the outcome of the Federal Reserve’s two-day meeting for clues around the future direction of US interest rates. Unlike the pound, however, the dollar did have some data to digest – and it was far from positive.

US retail sales – a measure of purchases at stores, at restaurants and online – fell 3% in February, the Commerce Department said on Tuesday. Shoppers reined in their spending during February, following robust January sales that were largely fuelled by stimulus payments to households. However, economists expect a rebound in sales in the coming months as businesses reopen and another round of government stimulus improves conditions.

Looking Ahead

The Fed’s two-day monetary policy meeting concludes today. Policymakers are expected to forecast that the US economy will grow this year at its fastest rate in decades, with unemployment falling and inflation rising, but are unlikely to change the central bank’s monetary policy.

Investors in the pound are firmly focused on tomorrow’s interest rate decision from the BoE’s Monetary Policy Committee, which is expected to keep the cost of borrowing in the UK at an all-time low.

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